December 31, 2021

Stop Waiting, the New Normal Is Already Here

"Waiting for the new normal" is what I hear often in my discussions with business leaders. However, as we close out a year as the world deals with the Omicron variant of covid-19, the new normal seems elusive and distant. Or, perhaps, we are living in age of the new normal. As explained by The Economist, "The era of predictable unpredictability is not going away. In 2021 people have been yearning for something like stability. Even those who accepted that they would never get their old lives back hoped for a new normal. Yet as 2022 draws near, it is time to face the world's predictable unpredictability. The pattern for the rest of the 2020s is not the familiar routine of the pre-covid years, but the turmoil and bewilderment of the pandemic era. The new normal is already here."

Air travel, for example, forever changed as a result of the terrorist attacks of September 11th, 2021. "In the years that followed each fresh plot exposed an unforeseen weakness that required a new rule," The Economist notes. "First came locked cockpit doors, more armed air marshals and bans on sharp objects. Later, suspicion fell on bottles of liquid, shoes and laptops. Flying did not return to normal, nor did it establish a new routine. Instead, everything was permanently up for revision."

What is more, "The world is similarly unpredictable today and the pandemic is part of the reason. For almost two years people have lived with shifting regimes of mask-wearing, tests, lockdowns, travel bans, vaccination certificates and other paperwork. As outbreaks of new cases and variants ebb and flow, so these regimes can also be expected to come and go. That is the price of living with a disease that has not yet settled into its endemic state."

"For much of humanity the new year is a time for reflection on the past, The Economist says in another article. "But many minds will also inevitably cast forward. If the fitful past two years of the covid-19 pandemic offer any lesson, it is that the future remains murky and uncertain."

The article, which contains the image below, adds, "Not to be deterred, we have turned to prediction markets to give us a glimpse of 2022. Pooling data from punters on exchanges like Betfair, Metaculus, PredictIt and Smarkets, can offer a theoretically better guide to the future than plunging headlong into the unknown. Will the pandemic claim millions more? Might Russia invade Ukraine? Could America's high inflation persist? And will Tom Brady win an obscene eighth Super Bowl? Another eventful year awaits."

A business' success is often determined by how it can quickly adapt to changing circumstance cause by natural disasters, health crises, or financial market volatility, just to name a few. Defined as an ability to recover from or adjust easily to misfortune or change, resilience is a word that must be in the lexicon of all business leaders. As explained in a post on this forum about an article published by Dr. Linton Wells II, an expert who focuses on links between policy, technology and decision-making, especially in building resilience and cybersecurity, "Resilient companies produce impressive results. They have shown positive earnings and sales growth during recessionary years, improved their corporate image by effective strategic responses to natural disasters, raised dividends for several consecutive decades, and won back market share against low cost and online competitors."

While it is ideal to have more certainty on what may take place in the future, this is simply not possible. Whether it is for our home, business, or community,, the best we can do is prepare for uncertainty. There are events we can prepare for as evident in a video entitled "The World Ahead 2022: five stories to watch out for," but we must also create plans to quickly adapt to those unforeseen events.

Recognizing that the new normal has arrived, we should be asking: How can we ensure future-readiness by preparing for disruptions, be it a pandemic, natural disaster, geopolitical crisis, or a volatile financial market?

What are your predictions for 2022?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

December 29, 2021

While Mobile Technology Offers Life-Changing Benefits, Research Shows Many Persons With Disabilities Remain Unconnected and Digitally Excluded

According to a fact sheet produced by the World Health Organization (WHO), one billion people, or 15 percent of the global population, live with some form of disability. And the number of people living with disability are dramatically increasing due to demographic trends and increases in chronic health conditions, among other causes. In consideration of this information provided by the WHO, it was with great interest to read a report produced by the GSM Association (GSMA), a UK-based organization that represents the interests of mobile operators worldwide, that says "Mobile devices and services offer life-changing benefits to persons with disabilities, such as enabling access to basic services and independent living. Despite this potential many persons with disabilities remain unconnected and digitally excluded. It is estimated that around 90 percent do not have adequate access to the assistive technologies (AT) they require. Mobile-based ATs, especially smartphones, could be a valuable and cost-effective tool for persons with disabilities."

The report presents key insights into the mobile disability gap. Presenting research from the following seven low- and middle-income countries (LMIC): Algeria, Bangladesh, Guatemala, India, Kenya, Nigeria, and Pakistan, GSMA's research "revealed that persons with disabilities are less likely to own a mobile, especially a smartphone, and are even less likely to use, or be aware of, mobile internet."

In explaining the research's methodology, the GSMA says "The Washington Group Short Set of Questions was used to identify persons with disabilities. Respondents who reported that they had 'a lot of difficulty' or 'cannot do at all' in at least one of the functional domains were considered a person with disabilities revealed that persons with disabilities."

Key findings of the report include:
  1. "Persons with disabilities have lower levels of mobile ownership than non-disabled persons in all countries surveyed. Bangladesh has the widest gap, where persons with disabilities are 55 percent less likely to own a mobile phone than non-disabled persons, and the smallest gap is in Kenya and Pakistan at 11 percent.
  2. "Despite the life-enhancing potential of smartphones as an assistive technology and a gateway to digital inclusion, persons with disabilities are significantly less likely to own a smartphone than non-disabled persons. The disability gap in smartphone ownership is wider than the gap in overall mobile ownership in most of the survey countries.
  3. "There is a significant disability gap in mobile internet use. In each of the survey countries, persons with disabilities are significantly less likely to use mobile internet than non-disabled persons.
  4. "Across all survey countries, fewer persons with disabilities are aware of the mobile internet than non-disabled persons. This is a significant barrier that prevents persons with disabilities from using and benefitting from mobile internet.
  5. "In India and Pakistan, mobile users with disabilities who are aware of mobile internet but do not use it reported that a lack of literacy and skills is the main barrier to usage. Other major barriers include lack of perceived relevance, safety and security and affordability."

The GSMA correctly asserts that "Key stakeholders in the mobile industry have a critical role to play in closing the mobile disability gap and ensuring digital inclusion for all. This includes policymakers, international organizations, non-governmental organizations, organizations for persons with disabilities (OPDs), mobile operators and other ecosystem players, including start-ups and device manufacturers."

What is more, the report offers the following recommendations for stakeholders interested in eliminating the mobile disability gap:
  • "Understand the mobile disability gap and how to reach and serve persons with disabilities better. Accurate and reliable disability-disaggregated data is a crucial tool for stakeholders to understand and address barriers to the digital inclusion of persons with disabilities. However, in most markets, disability-disaggregated data related to the access and use of mobile-enabled products and services is lacking, and has hampered digital inclusion efforts. It is critical that policymakers, the public and private sectors and digital players invest in, and collaborate on, accurate, ethical and effective data collection. This will help to monitor progress and inform the design of inclusive and relevant products, services and innovations for persons with disabilities.
  • "Raise awareness of mobile internet and its benefits for persons with disabilities. Awareness of mobile internet is lower among persons with disabilities than non-disabled persons, limiting their potential usage of mobile internet. To raise awareness of the benefits of mobile internet and smartphones as an assistive technology, stakeholders can develop campaigns targeting persons with disabilities and explore partnerships with OPDs to reach persons with disabilities and showcase how mobile services are relevant to their lives.
  • "Develop inclusive products and services that meet the diverse needs of persons with disabilities. Once persons with disabilities are aware of mobile internet and its benefits, it is important that they have access to relevant products and services that meet their needs. It is important that stakeholders ensure that existing products are accessible, and that new content, products and services are created with persons with disabilities in mind (e.g. user-centered design and inclusive or universal design practices) to improve accessibility and usability.
  • "Build the digital skills of persons with disabilities. Many persons with disabilities are digitally excluded because they do not know how to use mobile and mobile internet in a way that meets their needs. Stakeholders can support the delivery of mobile digital skills programs that train persons with disabilities (and their caregivers/relatives) how to use mobile internet to meet their needs. They can also explore partnerships with OPDs or other relevant organizations to teach persons with disabilities how to access and use accessibility features and mobile-enabled products and services. Stakeholders can use resources such as the GSMA's Mobile Internet Skills Training Toolkit (MISTT) to train people how to access and use mobile internet services, including accessibility features. The toolkit is a visual, easy-to-follow guide that helps trainers demonstrate the functionality and value of the internet on internet-enabled mobile phones.
  • "Ensure products and services are affordable for persons with disabilities. Smartphones, which typically provide the most accessibility features and drive substantially higher mobile internet use, are often unaffordable for persons with disabilities. Mobile operators can design solutions to make internet-enabled handsets more affordable to persons with disabilities, such as innovative financing models and 'data-light' accessible versions of mobile apps and services."

A more detailed set of recommendations for the mobile industry can be found in the GSMA's Principles for Driving the Digital Inclusion of Persons with Disabilities.

Do you agree with the recommendations for eliminating the mobile disability gap? What inclusive products and services are you developing to meet the diverse needs of persons with disabilities?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

December 27, 2021

Japan: On the Front Line

Image: The Economist
Reflecting on my earliest childhood memories, Japan is a country outside of my home country of the United States that I first learned about. Starting with my grandfather sharing his experience of serving in the U.S. military at Pearl Harbor, Hawai'i on Dec. 7th, 1941 (an experience that does not reflect the east Asian country in a positive light), to my fourth grade teacher, Ms. Murakami, a Japanese-American who shared aspects of the country's unique culture, to summer visits to my grandfather's sister-in-law in Florida where Aunt Etsi taught me to say a few Japanese words and how to use chopsticks, I find the country fascinating.

During my professional career, I appreciate having the privilege of spending a significant amount of time in Japan. These experiences, some of which are discussed on this forum, include helping a Japanese medical device company create a strategic plan to export their product to key international markets, advising an American company to deploy its services in the country, or building relationships with business and government leaders from Kobe, Japan's only city to have a sister city relationship with Seattle. Therefore, it was with great interest to read a special report produced by The Economist about the world's third largest economy.

Accompanying the report, which is comprised of eight articles, an editorial notes that "Two takes are often told about Japan. The first is of a nation in decline, with a shrinking and ageing population, sapped of its vitality. The second is of an alluring, hyper-functional, somewhat eccentric society—a nice place to eat sushi or explore strange subcultures, but of little wider relevance to the outside world. Both tales lead people to dismiss Japan. That is a mistake."

The Economist's report argues that "Japan is not an outlier—it is a harbinger. Many of the challenges it faces already affect other countries, or soon will, including rapid ageing, secular stagnation, the risk of natural disasters, and the peril of being caught between China and America. The fact that some of these problems hit Japan early makes it a useful laboratory for observing their effects and working out how to respond."

The report begins by explaining that "Japan's new imperial era began in spring 2019, when a nondescript man in a dark suit revealed its name: Reiwa. The first character, rei, means 'auspicious' or 'orderly'; wa means 'harmony' or 'peace' (officials chose 'beautiful harmony' as the English rendering). For the first time the name came not from classical Chinese literature, but from Japan's Manyoshu poetry anthology, compiled over a millennium ago: 'In this auspicious (rei) month of early spring, the weather is fine and the wind gentle (wa).'"

With respect to Japan making a "case for a more active and interventionist security policy," The Economist points out that "If rivalry between China and America is the big story in 21st century geopolitics, no other country, except perhaps Taiwan itself, has as much influence as Japan over how it will unfold—nor as much to lose if it goes badly. 'Japan is the front line,' says General Yoshida Yoshihide, chief of the army. This reality is forcing a realization that, although there can be no substitute for America, Japan must supplement it in order to maintain a favorable balance of power."

Moreover, "Japan is strengthening defenses and building ties with others. Tanaka Akihiko, of the National Graduate Institute for Policy Studies (GRIPS) in Tokyo, speaks of a shift from a 'one-pillar' to a 'multi-pillar' architecture. 'We can't rely on America alone,' he says. That does not mean turning away but keeping America close by contributing more. Nor does it mean antagonizing China, upon which the economy depends. 'As the rest of us figure out how to compete with China without catastrophe, Japan has been there for at least a decade and Japan has the best strategy,' says Michael Green, a former official at America's National Security Council."

On the topic of climate change, Japan is prepared for disaster, but unprepared for climate change. "As the threat from natural hazards grows, from climate change-fueled fires to zoonotic pandemics, the world must live with more risk," says The Economist. "The countries that fare best will be the resilient ones. In 'The Resilient Society,' Markus Brunnermeier, an economist from Princeton University, argues that "Resilience can serve as the guiding North Star for designing a post-covid-19 society."

The discussion on climate change importantly adds: "The biggest lesson from Japan is the value of preparation." As Karashima Yukari, who works at the Peace Boat Disaster Relief Volunteer Center, a Tokyo-based nongovernmental organization that assists people in disaster-affected communities and strengthen the capacity of local communities to response to disasters both in Japan and around the world, says, "'It's too late if you start acting after the disaster happens.' That this sounds banal in much of the world makes its absence more striking."

What is more, "Of $137bn provided in global disaster-related development assistance from 2005 to 2017, 96% was spent on emergency response and reconstruction, less than 4% on disaster preparedness. Donors prefer high-profile rescue work; the media cover disasters when they happen, not when they do not. Many governments treat prevention as a cost, not an investment. But natural hazards are not always disasters. 'The hazard becomes a disaster when the coping capacity is too weak,' says Takeya Kimio, an adviser to Japan’s overseas development agency. In 2015 he promoted the 'Build Back Better' concept in the UN Sendai Framework, a global pact on disaster-risk management."

The special report also discusses how Tokyo, the world's biggest city, is also one of the most livable. "[W]ith 37m residents in the metropolitan area and 14m in the city proper," Tokyo "offers lessons to developing cities elsewhere. In 1950, 30% of the world's population was urban; by 2050, 68% will be. Much remaining growth will be in megacities of more than 10m in Asia and Africa. There are 33 such cities now; by 2030 there will be 43. As Tokyo grapples with what to do when cities age and shrink, it can also serve as a case study for other rich cities."

Japan is learning to cope with an ageing population, notes The Economist. "Demographic change has two drivers often lumped together: rising longevity and a falling birth rate. Their convergence demands 'a new map of life' says Akiyama Hiroko, founder of the University of Tokyo's Institute of Gerontology." Furthermore, "Infrastructure created when the population was younger and the demographic pyramid sturdier must be redesigned, from health care to housing to transport. The new reality demands a 'completely different way of thinking,' says Kashiwa Kazuyori, head of Gojome's town-planning department. When he started work in the 1970s, the focus was on growth. Now it is about managing decline."

Part of managing the decline of an ageing workforce is replacing retiring workers with foreign workers. Japan, perhaps unfairly, is often criticized about its reticence of allowing foreign workers to immigrate to the island nation. An article focused on how the ranks of foreign workers are growing fact but from a low base, however, says "One in every 55 workers is foreign, up from one in every 204 in 2009."

As for the economy, The Economist explains how "Japan is the canary in this coal-mine":
In the 1980s its booming economy struck fear in the world. After the bubble burst in the 1990s, public debt ballooned and deflation set in. Many in the West said Japan's debt was unsustainable and the Bank of Japan (BOJ) should do more to boost inflation. In 2013 the BOJ's governor, Kuroda Haruhiko, embarked on dramatic monetary easing. The debt hovered around 230% of GDP. A strange thing ensued: no fiscal crisis struck, nor did inflation come near the 2% target. "The standard textbook on macroeconomics needs an additional few chapters—it doesn't capture the problems Japan faced," says Shirakawa Masaaki, Mr Kuroda's predecessor.

Japan is among many countries that has experienced a decline of worker productivity. As the article on the economy explains, "Boosting productivity could help to offset the impact of the shrinking population." Yoshikawa Hiroshi, president of Rissho University in Tokyo, "reckons that innovation is key to growth, and that ageing creates new problems that entrepreneurs can solve. Generational shifts may help. While many still prefer stable sarariman (salaryman) jobs in big firms, some of today's brightest graduates go into startups." Encouragingly, I have observed a rise of Japanese startups in the past several years that are developing innovative solutions in artificial intelligence, climate tech, data analytics and machine learning, digital healthcare, robotics, and enterprise services.

The report concludes with an assertion that Japan "would be better with younger and more dynamic leaders." The ruling LDP party has won every election "but twice since the party's founding in 1955." The article importantly explains that "Without a threat of losing power, any ruling party becomes unaccountable. Demographic change exacerbates things: some 20% of local politicians are elected without a contest. The result is a government that, in many ways, does not look or think like its people. Less than 10% of new Diet members are women; just three out of 21 cabinet ministers are. Only two are under 50. Dynastic politicians still dominate."

What is more, "Society is changing faster than established powers. Japan is in the midst of a quiet transformation, argues Hosoya Yuichi, a political scientist: 'There is a new wind, but within an old-fashioned structure.' On social issues from gay rights to family law, the LDP is out of step. Many voters feel they cannot change the system, which drives some into business or civil society, not politics."

While attending a conference about Japan's importance in the future of Asia in 2016, I was asked by a fellow attendee about my thoughts on economic engagement in Japan. In light of China's rapidly growing economy at the time, coupled with Japan's secular stagnation of low inflation, low interest rates and low growth, I replied that a business would be foolish to consider entering the Japanese market. I was wrong.

Despite tightening regulations on the private sector, increased censorship of the media and Internet, inconsistent policies on currency repatriation, and issues concerning human rights, China's market may be too big for some businesses to ignore. Japan, however, with its independent judiciary, democratic government, and open economy, presents an opportunity that businesses of all sizes should explore.

Do you agree that Japan is a harbinger, not an outlier? What business or investment opportunities are you seeing in the country?
Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

December 26, 2021

Recommendations on Making Smart Cities and IoT a Reality in Latin America

In response to the previous post about Latin America's mobile economy including the projected growth of the region's Internet of Things (IoT) market, a reader shared a link to a report entitled Making smart cities and IoT a reality in Latin America: a quick guide for decision-makers. Noting that IoT "brings about an enormous opportunity for Latin America," the report, which was produced by the GSMA, a UK-based organization that represents the interests of mobile operators worldwide, predicts that "IoT solutions will innovate across a great variety of industries, such as energy, healthcare and transportation. They will combine communication networks and existing 'off-line' services increasing productivity, diminishing waste and improving citizens' wellbeing."

In addition, the report, which is available in English and español, explains that "[i]f governments and policymakers in Latin America want to realize the full benefits of the IoT and help close the technology gap between the region and developed countries they should take action, they should:
  • "Resist the temptation to consider IoT services as traditional telecom services. Legacy regulation – that is, regulations established long before the IoT became a reality to deal with traditional voice and data services, will be most often irrelevant, will unnecessarily stifle IoT innovation, slow down take up and ultimately damage consumer and business in the region
  • "Facilitate a cross-regulator, cross- department dialogue and strategy across the various government administrations. For example, utility and telecom regulators should define and work together on how to promote smart meters; Transport and Communication ministries should define together how communication networks will serve roads; Smart city planners from different towns should work together to define best practice and work on common standards."

On designing a comprehensive IoT policy, the GSMA recommends that policymakers "build a 3-step plan consisting of scoping the country's needs and potentials, estimating the positive impact on different economic areas and IoT verticals, and then designing and implementing specific actions to enable such growth." As for governments serving as demand enablers, the report suggests that "where possible, migrate towards utilizing IoT-enabled solution for public services – from utilities to urban mobility and healthcare." Developing public-private partnerships (PPPs) "and seeking/offering various sources of funding can be an important step to secure this goal."

Lastly, with respect to privacy, security, and standardization, the GSMA presents four recommends on how "governments should resist the temptation to create specific rules and national standards for IoT":
  • A general data protection law that applies horizontally to all industries and services – not just IoT – is an important measure to secure trust in the IoT and guarantee consistent levels of protection for users.
  • On what concerns security, it is important that governments support industry-led best practices and standards, which are constantly evolving to overcome threats, making it quicker and more cost-effective to adapt than rigid national standards.
  • Governments should also note the myriad of efforts already being pursued by industry-led standards, and their importance for interoperability of services at the national and international levels – therefore, creating national standards would likely be counterproductive.
  • A flexible and reliable governance structure. At the city level, it is important that mayors create a flexible governance model with an independent leader (such as a Chief Information Officer, CIO). For municipal services, mayors should always prefer scalable and interoperable solutions to avoid vendor lock-in. Finally, mayors should consider adopting open data policies to foster a data-enabled economy that could be easily used by citizens, NGOs and commercial entities. As well as providing one-stop access to a city's information, sharing data would support communication and analysis, more transparent and efficient policymaking, and create value by catalyzing the development of innovative apps and services.

As a topic of regular discussion on this forum, I remain optimistic by the benefits IoT and smart cities will bring to people in industrialize and emerging markets alike. International standards and best practices, however, must be in place to maximize the benefits of such innovation. I hope this report serves as a useful tool for policymakers in Latin America and emerging markets worldwide.
Do you agree with the recommendations on how to make smart cities and IoT a reality in Latin America? What would you add?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

December 13, 2021

Economic Contribution of Latin America's Mobile Ecosystem Will Grow by More Than $30 Billion by 2025

According to its GSMA Intelligence's latest report on the state of the mobile economy in Latin America, the research arm of the GSM Association (GSMA), a UK-based organization that represents the interests of mobile operators worldwide, says "The mobile industry in Latin America continues to play a crucial role in the response to Covid-19. Mobile networks have enabled social and economic activities to continue. People have relied on the internet to stay connected to friends and family, access educational and health services, and work remotely."

Growth in subscriber penetration and smartphone adoption remains strong, the report notes. GSMA Intelligence estimates Latin America will have 485 million unique mobile subscribers by 2025 (73% of the population), up from nearly 450 million by the end of 2021. "Around half of new subscribers will come from Brazil and Mexico during this period. There will also be strong growth in underpenetrated markets such as Guatemala and Honduras."

The report, which is available in English and español, importantly adds:
Smartphone connections in Latin America will reach 500 million at the end of 2021 – an adoption rate of 74%. The next four years will see almost 100 million additional smartphone connections in the region, taking adoption above 80%. This will spur mobile internet adoption, enabling more people to access digital services for the first time. These achievements will be underpinned by operators' continued investment in network infrastructure. Between 2020 and 2025, mobile operators in Latin America will invest more than $73 billion in their networks, with an increasing share of this 5G-related.
While 4G continues to dominate the Latin American market, accounting for close to 70 percent of total connections at the end of 2025, the report encouragingly asserts that "5G momentum is building, with further commercial 5G services launched in 2021." GSMA Intelligence points out that "While mobile operators wait for access to new spectrum, they are laying the groundwork for the 5G era through investments in accompanying infrastructure, such as fiber, and partnerships to trial and develop new applications."

On the topic of the mobile industry driving economic growth and social development, the report explains that "In 2020, mobile technologies and services generated 7.1% of GDP in Latin America – a contribution that amounted to more than $340 billion of economic value added." Moreover, "The mobile ecosystem also supported more than 1.6 million jobs (directly and indirectly) and made a substantial contribution to the funding of the public sector, with more than $29 billion raised through taxes on the sector in 2020. By 2025, the economic contribution of the Latin American mobile ecosystem will grow by more than $30 billion, as countries in the region increasingly benefit from the improvements in productivity and efficiency brought about by the increased take-up of mobile services."

On the transformation of the enterprise sector, GSMA Intelligence says "As a result of mobile operator activity and partnerships, total IoT connections in Latin America will amass at a hastening pace, reaching close to 1.2 billion in 2025. Growth will be relatively faster in the enterprise IoT market, with a notable increase in the adoption of smart buildings solutions (forecast to record a CAGR of 24% between 2020 and 2025)." Furthermore, "IoT applications have the power to make a meaningful contribution to the UN's Sustainable Development Goals (SDGs) by facilitating carbon emissions reductions, while improving safety and supporting economic development."

Lastly, the report discusses decisions policymakers in Latin American can make to help shape the connected society. "The pandemic has emphasized the need for connectivity and the critical role of mobile technology. Now is the time for governments to reassess the business and regulatory environment for mobile services in order to accelerate investment and innovation for a connected society."

Infographic: GSMA Intelligence

What opportunities are you seeing in Latin America's mobile economy?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

December 8, 2021

Report Details Europe's Rapidly Growing Tech Sector

During my time serving as an advisor to a German tech firm in the late 2000s, I had the opportunity to learn more about Europe's tech sector. While the United States was experiencing a rise of its own tech sector, I was surprised at the lethargic growth of the sector in Europe. As explained by The Economist, "That a continent shattered by two world wars produced far fewer businesses destined for high growth in the second half of the 20th century is perhaps unsurprising. But Europe never recovered its appetite for high-growth business creation. In the past three decades, America has spawned four behemoths—Google, Amazon, Tesla and Facebook, now known as Meta—whose valuations have topped $1trn."

What is more, "Not one of Europe's corporate youths, meanwhile, has risen as high as $100bn. One champion of the 2000s, Skype, was in 2011 bought for $8.5bn by Microsoft. The other, Spotify, is today worth only $48bn. SAP, the closest thing the continent has to a tech giant, was founded three years before Microsoft and is worth less than a fifteenth of it."

Over a decade later from advising the German tech firm, I was pleased to read an article by Ryan Browne, a technology reporter for CNBC in London, proclaiming "Europe's tech sector is on fire." Focusing on a report produced by Atomico, a UK-based venture capital firm, Mr. Browne writes that "Start-ups in the region are on track to haul in a record $121 billion in funding this year ... roughly three times the $41 billion of capital raised in 2020. It's the first time European start-ups have raised more than $100 billion in a single year, and highlights surging interest from investors in the continent's rapidly-growing tech industry."

"'It's been a defining year for European tech,' Tom Wehmeier, Atomico's head of insights, told CNBC. 'I think what we've seen in the numbers is that European tech is creating value faster than ever.'"

Titled the State of European Tech 2021, below are the report's key findings:
  • Record growth drives new milestones. "Europe is firmly positioned as a global tech player in 2021, with a record $100B of capital invested, 98 new unicorns, and the strongest ever startup pipeline, now on par with the US. European tech is creating value at its fastest pace, adding $1 trillion in just 8 months. While geographical differences in maturity level remain, talent mobility and distributed success is powering newer hubs."
  • Talent is betting on tech. "The European tech talent pool is deeper and more experienced than ever, as talent is recycled across the continent. Yet there is still a way to go; talent acquisition tops the list of challenges for founders, alongside fundraising. Many founders – particularly those from underrepresented backgrounds – are finding it as hard as ever to access capital."
  • European entrepreneurs are shaping their own path. "European tech has become a breeding ground for companies across all sectors. From frontier tech to crypto and enterprise SaaS, European founders can build successful companies from Europe. A new generation of entrepreneurs is putting social and climate impact at the core of their mission. The ecosystem is aware of the need to improve diversity and inclusion, but has much left to do to make that happen."
  • Investing in Europe is more attractive and dynamic than ever. "VC has become the leading funding mechanism for entrepreneurs, but to stay competitive, VCs have to keep innovating. As the opportunity set matures, global investors are doubling down: from seed rounds to public markets, there are now more international investors and buyers active in Europe. While investors across the board have more conviction in European tech, pension funds still lag behind on their allocation to tech."
  • Outcomes defy expectations in private and public markets. "Europe continues to produce more tech IPOs than the US, $1B+ IPOs are becoming the norm, and record-breaking exit activity reached an astonishing $275B in deal value. Still, Europe is only in the first innings of its tech journey, with all indicators now pointing towards many trillions in value to be added over the next decade, even in a conservative scenario."
  • From stumbling blocks to building blocks. "European tech is on a strong trajectory, with venture capital delivering consistently benchmark-beating returns. However, funding, talent and policy are all critical components we must continue to fine tune. With more collaboration across private and public sectors, we can supercharge the next decade for tech. And with better accountability from founders and investors, we can deliver more on inclusivity and sustainability."

While the report paints an optimistic scene, "Not all is rosy in European tech," CNBC's Mr. Browne notes. "Despite venture-backed companies raising record levels of funding in Europe, early-stage firms are being squeezed, according to Atomico." Moreover, "Less than 1% of venture capital invested in the first nine months of 2021 went to companies that were founded this year, a figure that has typically ranged from 1-3% in earlier years."

Mr. Browne also points out that "diversity remains a key issue. Only 1.3% of venture capital funding in Europe goes to start-ups with ethnic minority founding teams, Atomico said, citing a survey of more than 5,000 tech professionals in the region." And "the lack of pension fund allocation to start-up investments" is another hurdle "with European pension funds earmarking less than 0.02% of their $3 trillion for venture capital funds."

"Yet change is in the air," the aforementioned article by The Economist explains. "Venture capitalists, who want to sniff out the next Google while it is still being run from the founders' kitchen tables, are homing in on European startups. There are many more to choose from. European entrepreneurs who would once have gone west to start a business are now likely to start up at home rather than in Silicon Valley."

The Economist
 adds that "A new influx of capital is proof of an altered mood. Ten years ago, European firms grabbed less than a tenth of all venture capital (VC) money invested globally, though Europe’s share of global GDP was a little over a quarter." Encouragingly, "This year has seen dealmaking volumes soar in many regions, but particularly in Europe, which now attracts around 18% of global VC funding, says Dealroom, a data provider (see chart 1). That funding is at an all-time high, pumping up values for European startups. The continent now boasts 65 'unicorn cities,' or those which have produced a privately held startup worth more than $1bn. That is more than any other region."

What are your thoughts about the sate of Europe's tech sector? What opportunities or risks are you seeing?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

December 3, 2021

China to Benefit From Declining US Interest in the MENA Region

Those who follow geopolitical events in the Middle East are speculating how United States' withdrawal from Afghanistan will impact matters in the region. A paper published by The Economist Intelligence Unit (The EIU) focuses on this topic as it "examines which countries in the region could be next to be destabilized by the external competition to result from the US withdrawal. The paper "also outlines which countries could benefit economically from a growing relationship with China" and "aims to help investors in the region understand how geopolitical risk, and international tensions in particular, have shifted with the US’s exit."

Helping "investors to better understand relative risk across the region," below are the paper's key findings:
  • The speed with which the Taliban retook Afghanistan emphasizes the risks for traditional US allies of over-reliance on US security guarantees, while also highlighting opportunities for other Global powers to expand in the region.
  • China's neutrality in the Middle East and North Africa (MENA) and economic power make it the best-positioned external power to benefit from long-term US withdrawal from the region.
  • Traditional US allies—mainly the UAE, Israel, Saudi Arabia and Egypt—will undergo some modest diversification of their relations with other major powers and try to resolve some regional conflicts without the US.
  • However, those same US allies will also compete for influence with two other blocs with different ideological visions for the region—one led by Iran and the other comprising countries backing regional Islamist groups.
  • This will lead to shifting diplomacy between blocs, as well as the emergence of new pockets of instability—with Lebanon currently most at risk.

According to The EIU, "The criticism that the US president, Joe Biden, has come under for the US withdrawal from Afghanistan suggests that further sudden US troop withdrawals from conflict zones are unlikely for now. Remnants of Islamic State in Iraq and Syria will probably mean that some US presence, albeit a reduced one, stays there in the medium term." The paper further asserts that "the US will continue to maintain its security alliances, ensuring it remains the main foreign security presence in the region. However, it is clear that a key part of US foreign policy is to avoid being drawn into lengthy and costly conflicts in the region—preventing Iranian nuclear proliferation perhaps being the only exception. As a result, Turkey, Russia and China have more scope to become regional powerbrokers."

With respect to China benefiting from long-term US withdrawal from the region, the paper explains that "China has little interest in competing with the US for regional security dominance. But there are economic incentives for China to expand its presence—the Middle East provides key trade routes from Asia to Europe and East Africa as part of its Belt and Road Initiative, and is the source of much of China's oil supply."

The EIU importantly adds:
Although US influence remains paramount for Israel, which may limit Chinese opportunities there, most other countries will deepen their economic ties with China. Provided Iran secures US sanctions relief, Chinese infrastructure investment in Iran is likely to rise sharply in return for cut-price oil. At the same, the Gulf economies will build closer relations with China, while still balancing their alliances with the US, as a source of much-desired technology-sharing and external financing. Meanwhile, China's growing influence will also put it in a prime position to secure reconstruction contracts in conflict zones like Libya and Syria. In the longer term, as its economic interests grow, geopolitical neutrality will become more difficult. But in the short to medium term, China's interests in the Middle East will remain largely economic.
Lastly, the paper includes The EIU's MENA Risk Tracker Scores for Political Stability and Security Risk (see images below) where Yemen and Qatar are ranked most and least risky, respectively, for both political stability and security risk.

How do you think the United States' withdrawal from Afghanistan will impact matters in the MENA region? 

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.